Macroeconomic Volatility and its Significance to the Rising External Indebtedness of Nigeria

Abstract

The motivation of this study has been to identify the effects of the multidimensional perspectives of macroeconomic volatility on the growth of external debt in Nigeria from 1970 to 2018. Methodologically, the Auto-Regressive Distributed Lag (ARDL) model and the Toda-Yamamoto causality approach were adopted. For the purpose of understanding the multidimensional perspective of macroeconomic volatility, macroeconomic volatility was disaggregated into three different perspectives which are: volatility from macroeconomic outcomes, domestic sources, and external sources. Findings from the study suggest that while volatility from macroeconomic outcomes exclusively affects external debt in the long-term, effects from the three sources were very substantial in the short-term. Furthermore, the causality result indicates bidirectional nexus between volatility from macroeconomic outcomes and external debt. Also, the irregular variations in the Nigerian political space, unanticipated disease outbreaks, and the effects of the 1986 recession in the country all significantly worsened the country's external debt situation. Thus, the study recommended amongst others that since developing countries such as Nigeria cannot do away with the demand for external debt to finance its economic growth, it is also important to count the cost such financing provides even if faster growth is actually realise.

Does External Debt Promote Human Longevity in Developing Countries?

“…Financial markets in West African countries also contribute to the adverse effect of external debt insolvency on longevity. Like other developing countries, financial markets in West Africa possess weak credit instruments and inadequate savings (Aladejare, 2021). Thereby constraining the level of international trade agreements and investments the financial institutions can finance.…”

“…Two core indicators of macroeconomic volatility used in this study are inflation and the exchange rate. Producers and consumers often consider both variables as crucial indicators when assessing the health of an economy (Aladejare, 2021). A comprehensive inflation measure known as the GDP implicit deflator is applied.…”

“…Hence, the dream of a dignified life through access to quality healthcare, education, sanitation, water, security, jobs, etc., often appears like a mirage. As a remedy, developing countries often rely on external borrowing to fund critical infrastructures required for spurring economic growth and development (Aladejare, 2021). The reason is that the fiscal space needed to increase resources is constrained in many of these countries (OECD, 2020).…”

Does External Debt Promote Human Longevity in Developing Countries? Evidence from West African Countries

“…Significant factors for external debt accumulation in West Africa include the sensitivity of debt burden indicators to growing inflation rate, exchange rate volatility, the quest for import substitution and industrialisation, etc. (Aladejare 2021 ; Li 2021 ; An and Feng 2022 ; Gyamerah et al 2022 ). For instance, the overwhelming economic shock brought about by the coronavirus pandemic in 2020 could further aggravate the debt burden in most West African economies (Kirton and Wang 2021 ).…”

“…Hence, the dream of a dignified life through access to quality healthcare, education, sanitation, water, security, jobs, etc., often appears like a mirage. As a remedy, developing countries often rely on external borrowing to fund critical infrastructures required for spurring economic growth and development (Aladejare 2021 ; Khan et al 2022 ). The reason is that the fiscal space needed to increase resources is constrained in many of these countries (OECD 2020 ).…”